Investing

The power of dividends has never been so potent. Over the next few years, investing is going to be all about yield.

With uncertainty over the global economy there has been a massive shift in investor sentiment to cash and other income producing investments. Arguably that pendulum has probably swung too far.

During uncertain times, investors tend to shy away from equities markets and head towards the apparent safety of traditional interest bearing investments. But don’t be so hasty.

We know we’ve said it before, but in these uncertain times it is worth shouting it from the roof tops again and again… don’t under estimate the power of dividends.

While most of us follow the fortunes of our share portfolio each day via their share price movements, that dividend payment twice a year often goes unnoticed… it shouldn’t.

Studies in the US show that over a one year period, 80 per cent of share’s return comes from fluctuations in share price. But over a 5-year investment horizon, 80 per cent of a share’s return comes from dividend yield and dividend growth.

The same holds true around the rest of the world. In Europe, since 1970, 80-100 per cent of total share returns have come from dividends. In Japan, share valuations have gone backwards since 1970 while dividends have added an average 2 per cent.

Surprising isn’t it.